3.9. SR 07-15-2002 - Laserfiche WebLink

Home Browse Search

Loan Criteria and Approval Process One of the primary goals of the MCCF is to provide local communities with significantly greater lending capacity and a more flexible, user-friendly development financing resource than most economic development loan programs. Therefore, the Fund is being designed with relatively few hard and fast rules concerning borrower eligibility, target interest rates, loan terns and conditions, equity requirements, etc. Loans of up to ten times the amount members have contributed to the Fund may be funded through the MCCF. So. a $50,000 investment allows a member to originate loans of up to $500.000. What's most important in evaluating any given loan application is: · Creditworthiness of the borrower. · Repayment ability based on cash flow analysis. · Commitment of one or more banks to participate in the financing. · Support of the local community and MCCF member. The fund manager will be directly involved in negotiating and structuring every loan package that includes a MCCF loan. Once the originating MCCF member adopts a local resolution in support of the loan application, the request will be submitted to the MCCF Loan Committee, which will consist of five members (appointed by the Board of Directors) who have experience and expertise in reviewing business and/or housing loans. The loan committee will meet on an "as needed" basis in order to expedite the loan review process, and will have the responsibility and final authority for approving, denying, or modifying the loan terns and conditions. Once the loan committee approves a loan, the fund manager will coordinate the loan closing and sale to the secondary market. Fund Recapitalization The MCCF wiil be a self-sustaining 'development resource, with the con'tinual recapitalization of the Fund through the sale of pre-approved loans to the secondary market. MCCF loans will be structured to best meet the needs of our members, the borrowers, other participating lenders, and the community. One of the primary considerations for octr members as loan terms and conditions are being negotiated is how the secondary, market will price the loan for purchase. Most institutional investors active in buying econotmc development loans are seeking a market rate of return. Accordingly, loans that are priced at market rates receive par value, those priced above market earn a premium, and those priced below prevailing market rates are discounted. Below are examples of actual economic development loan sale transactions conducted within the past year*: · A loan made to a local business to expand a processing facility carried an 8% interest rate with a five-year term and ballooned at maturity. This loan had a remaining principle balance of $198,689, and was sold for $191,895 (96.5% of par). · A i0% loan made to support the expansion of a dry-cleaning plant was sold at a premium when the loan balance of $27,155 was purchased for $27,969. · A nonprofit housing organization provided a loan as part of a financing package for the development of an 80-unit affordable housing development. The interest rate was at the prevailing market level, so the lender received par value for the $302,000 remaining balance of the loan, which was secured by a first mortgage. · An existing loan made to a local printing company for the purchase of additional equipment was sold to recapitalize a local loan fund. At sale, this 10-year term loan had a principle balance of $84,520, with an interest rate of 7%. The seller received $81,162 or 96.03% of par for this loan. The discounted purchase price included a 2.5% transaction fee charged by the loan broker. · A locaI economic development lender issued, a loan at 8.5% for 20 years to fund a business expansion, and negotiated an advance commitment for the purchase of the loan at par value. *Examples provided by Community, Reinvestment F~,nd solely for the purpose of demonstrating how the secondat? marker for economic development loans responds ro interest rare variables. Loans originated from the MCCF p0ol will be subject to an advanced commitment from a secondary market buyer, such as the Community Reinvestment Fund (CRF). As such, the actual price to be paid for MCCF loans will be known to the participating member before a formal loan commitment is made to the borrower or other participating lenders. If the price offered by the market is discounted from par value, the MCCF member or4ginating the loan will be responsible for funding the difference between par value and the loan's sale price. On the other hand, if the loan is sold at a prermum, the member will receive the premium payment (that amount in excess of the loan's par value). Through this approach, the MCCF loan pool will be continually recapitalized and members will be able to originate more development loans in their communities. Membership Enrollrnent Schedule The pre-enrollment period for MCCF charter members is now underway. Communities and organizations are being asked to indicate their interest in becoming members of the MCCF by executing a non-binding letter of intent to join at a specified contribution Ievel. At the end of this period, if enough organizations have submitted LOIs, the MCCF will move forward with the preparation of all legal documents necessary to fbrmally launch the Fund. We anticipate the start-up of the Fund sometime during the first quarter of 2002. If your organization is interested in learning more about tkis unique opportunity or would like to express your interest in becomin.~ a charter member of the MCCF. r~lease contact Scott Martin at/95215,z[-9674.